Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Merchants Bancorp (NASDAQ:MBIN) share price is 98% higher than it was a year ago, much better than the market return of around 27% (not including dividends) in the same period. So that should have shareholders smiling. It is also impressive that the stock is up 62% over three years, adding to the sense that it is a real winner.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Merchants Bancorp

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last year Merchants Bancorp grew its earnings per share (EPS) by 107%. This EPS growth is reasonably close to the 98% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Merchants Bancorp has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Pleasingly, Merchants Bancorp's total shareholder return last year was 100%. And yes, that does include the dividend. That gain actually surpasses the 19% TSR it generated (per year) over three years. The improving returns to shareholders suggests the stock is becoming more popular with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Merchants Bancorp , and understanding them should be part of your investment process.

But note: Merchants Bancorp may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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